Alexander & Baldwin, Inc. ( ALEX) Analyst Day Conference Call April 11, 2012 9:30 AM ET Executives Suzy Hollinger – Director, Investor Relations Stan Kuriyama – President and CEO Chris Benjamin – President, A&B Land Group and A&B Properties Paul Hallin – Executive Vice President, Development David Haverly – A&B Properties Senior Vice President, Leasing Joel Wine – Chief Financial Officer Analysts Presentation Suzy Hollinger
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Paul HallinGood morning. Suzy Hollinger And David Haverly, A&B Properties Senior Vice President of Leasing. David Haverly Good morning. Suzy Hollinger Joel Wine who is A&B CFO will be here later in the presentation. He will be available to answer question. Slide four provides an agenda for our presentation after which we’ll take your questions. So let me now turn the presentation over to Stan who will provide an overview of our Real Estate and Land businesses. Stan Kuriyama Okay. Thank you, Suzy, and welcome to this morning’s presentation. I’ll give you a quick overview of the company, a little bit of our history. Who we are and will be upon separation and what our focus and strategy will be going forward from separation. Starting with slide six, actually I do see a few face, I was going to skip this slide since many of you I know are fully familiar with the company. But there are few new faces here, so just quickly. We started off in 1870 as a partnership between Sam Alexander and Henry Baldwin. So we are over 140 years old. They started off purchasing 12 acres on island of Maui, which over the decades expanded to include as you can see here over 130 acres of ownership throughout the state and three plantations. This is really the roots of the company from there we grew our real estate business, we acquired our shipping business, real estate where we started with 1949 when we developed the master-planned community of Kahului on island of Maui for our sugar cane workers, from there we began to look at lands that weren’t use for our sugar cane operations, began to entitle develop those. Then now 15 years ago we realized that in order to meet our growth objectives in real estate, we’d have to expand beyond our core landholdings. Our core lands are primarily in island of Maui and Kauai smaller population.
So we knew that as a strategy, we have to go beyond those core landholdings. So embark upon a program of investing in real estate in Hawaii outside of those core landholdings and today we are probably most active investor in real estate in the State of Hawaii.Shipping was a natural outgrowth of our sugar business. We had at one time in Hawaii speak about two dozen sugar plantations. Regrettably, today we are -- we own the last sugar plantation in State of Hawaii. We form about 35,000 acres on island of Maui. But at it’s peak Hawaii had about two dozen sugar plantations and all that sugar, raw sugar that was produced in Hawaii have to be shipped to our refinery on the West Coast hence the need for shipping company and over the years the sugar companies acquired a larger and larger interest in Matson, which itself is over 100 year old company and then in the 60s we acquired a majority interest and finally in 1969 A&B acquired full ownership of Matson, which is why today we own the Matson sugar -- Matson transportation company. It is today the largest carrier of goods to Hawaii. It ships about two thirds of the goods from Mainland to Hawaii, ships in Guam where we historically have shipped about 50% of the goods to that island. Recently our other competitor in trade lane went out of business or stop servicing Guam, so we currently ship 100% of goods to Guam but historically it’s been about 50%. Our ships that Guam to China, where they pick up goods in three ports in China and they had back fourth to Long Beach, California, so that’s the loop that we have in service and that’s supplemented by few other ships that go back and forth just between the West Coast, Mainland and Hawaii. That’s our transportation business.
Then turning to slide seven, having build up that business, we have decided now separation, it’s, whenever I meet with investors they ask us, well, why do you have, real estate and ag business together with shipping company and it’s, I’d just explain to you why we have that.But, it’s a good question, especially as the company has grown over the years and some of the synergies that previously existed between the two businesses no longer exit. So it’s a question we’ve look at ourselves every couple years last 10 years, there was also recent evaluation, which we started in very early 2011. We eventually reached the conclusion that indeed the time is right to separate the two companies, there a lot of benefits here which we’ve listed on the left hand side of the slide. But essentially we’ve grown two companies large enough and strong enough, and different enough certainly to stand on their own, and be successful as independent public company. So on December 1 our Board approved that decision we announced that on that date. Quick update on where we are on separation. We are on track for third quarter closing. We have submitted all the necessary documents with the SEC and IRS, and we expect receive those approvals in due course. This will be structured as a tax free spin-off. It’s actually the real estate and ag business that will be spin-off, and we will keep however the name Alexander & Baldwin, Matson will operate under its name Matson Navigation Company. We just got approval just the other day of our S-4 proxy. So that is now official and has been mailed out to our shareholders, Annual Meeting will be on May 11th. One of the items that will be vote upon on shareholders is the structure of the separation, not the separation itself that doesn’t require shareholder approval.
But looking at the different alternatives to how to best structure the separation, we came up with the plan that’s most efficient given all of the diverse holdings we have, that most efficiently accomplishes that separation and so that structure that under Hawaii law require shareholder approval. So there is a 50% approval requirement for that. We don’t expect any problems there, but off chance that it’s not approve there are alternatives we will use to effect our separation.So the question that asked let me address it upfront, we did fully evaluated the possibility of splitting out our real estate as a REIT, there are all those tax advantages to doing that, but there are number of important limitations on the REIT, obviously, including, the type of activity you can conduct, the income that qualifies for retreatment and given our future focus on development and creating value from our development activities, given our agricultural businesses, which don’t qualify for REIT income, and few other factors which we can get into later, at the end it was actually very clear decision for us to becoming a REIT at this point was not the right move for us. So we will not be adopting a restructure for the real estate. As far as planned capital structure is, excuse me, is concerned, at the time of separation our book assets for real estate and ag should be about $1.4 billion of total gross book assets value. We will have term debt of about $245 million. That based upon an assumption that at the time of separation we have about $600 million of term debt to consolidated level and upon separation about 60% will be allocated to Matson, soon by Matson and 40% by the real estate business. We also plan to have in place at the time of separation a revolver -- revolving line of credit for about $250 million, an undrawn facility that we will use to fund our operating and investment activities for the foreseeable future. So that’s separation.
Who we will be upon separation is kind of covered by the next slide. We are company, we believe with unique assets and competitive strength. We are the fourth largest private land owner in State of Hawaii, 88,000 acres.By selling real estate, our legacy lands over the years, and reinvesting the proceeds and 1031 tax deferred exchanges. We have built up a quality commercial portfolio nearly 8 million square feet properties on the Mainland and Hawaii. We have -- we continually work on building a development pipeline and certainly have been very active in the recent real estate downturn. We worked hard at developing a pipeline of future development projects. We will be now have over 3,500 fully entitled residential and commercial units in our pipeline that we can rollout as it supported by market demand. We have the largest farm in the State of Hawaii and that has some very interesting and real energy potential down the road for us. I mentioned a strong balance sheet and ample debt capacity we will have at the time of separation. But we also have important intangible assets, they reside primarily in our staff and who we are the reputation we built up and we are not just old but I think over the many decades we build up a reputation for the highest integrity trust within the state, Hawaii is not a big state, as you know, we are a big fish in a small pond. So the focus is always on us and that’s important for us therefore and to respond accordingly, and we still I think huge commitment to our communities and I think have earned the respect of most of the people throughout the State of Hawaii. Part of our DNA is also a very disciplined approach to underwriting and making investments, and we’ve learned a lot, we have staff here of many decades of experience and if you have watch real estate over 30 years as I have, A, it goes into cycles and B, watch the mistakes and successes of people who are investing in real estate in state, and I think, I have -- we’ve all learned quite a few lessons from being participants in real estate for these many years. So we are very disciplined and I believe very smart underwriters and investors in real estate in Hawaii.
And hopefully, we don’t just talk the talk but we walk it, we do have a track record of success. We have invested over the last 50 years well over $1 billion in commercial properties and development projects with favorable results and we’ll be describing some of those projects to you today.And of course, we are going to be Hawaii public company. There are very few Hawaii public companies. Certainly there is no other real estate company of scale in Hawaii. So if you are looking for a vehicle for investing in Hawaii real estate we are going to be at top of your list. That’s kind of who will be upon separation. Slide nine, we have just the map here of our landholdings, about 20,000 acres on Kauai, 70,000 acres on Maui. We will be getting into more detail on how you breakdown that acreage within our portfolio. Let me just mention those as you see a lot of blue, which is conservation. Conservation land is really can’t developed, but in our case they do have value for us. On island of Kauai we have a hydroelectric plant in the Wainiha conservation area produces very nice steady income for us and so that land itself has high value because of the income that hydro plant generates. And on island of Maui all that blue land provides irrigation water for the green land. So we harvest water of those blue lands to irrigate our plantation in the central area of Maui. Read the rest of this transcript for free on seekingalpha.com